Updated: September 24, 2020
Investors can be conservative, moderate, or aggressive. The type of investor that you are will dictate your decisions and strategies when it comes to managing your investment portfolio.
In the same vein, there are also different types of traders – both in the stock market and in currencies or forex.
Today’s guest post will talk about what these types are, particularly in forex trading, so that if ever you decide to become a trader, then it will be easier for you to choose which one you’d like to be.
The different types of traders
Are you the type of trader who never leaves open positions after a trading session or are you someone who is willing to wait hours or even days holding positions? Are you satisfied with just a few hundred pips of profit, or are you aiming for something bigger?
Your answers to these are among the factors that determine what kind of trader you are.
While we all have our own terms for the different kinds of traders and their respective styles, the generally accepted terms for trader types fall into three designations: day traders, swing traders, and position traders.
So what differentiates these trader types from one another? Let’s take a look.
Scalpers are the ultimate short term traders. They operate in even smaller time frames than day traders. They are frenetic traders who spend a large chunk of time glued to their chosen markets, making scalpers among the most dedicated traders.
Capital: While scalpers don’t necessarily need a large amount of capital to begin trading, they will need a steady flow of money for them to take advantage of any opportunities that pop up in the marketplace.
Target profits: Scalpers don’t rely on large trades for their profit, but rather small gains multiplied over a large number of small trades. Over time, these small gains add up to a substantial amount. Think of them being similar to business owners who sell products at a lower rate – with lower profits per item sold – but make up for it by the sheer amount of merchandise moved.
2. Day Traders
Day Traders live their trading lives one small chunk at a time. They’re the guys who aim for short term trades, usually for periods of less than 20 minutes. Since they trade in very short time frames, they tend to focus more on immediate trends than long term bias.
Capital: Often (but not always), one of the reasons day traders trade the way they do is that they don’t have that much capital to absorb early losses. Thus, day traders can survive with a smaller capital base than other trader types.
Target profits: Day traders don’t leave positions open for very long, so they are rather limited with their potential profits. These kinds of traders usually profit on volume rather than home runs, with profit usually below 100 pips per trade.
3. Swing Traders
Swing Traders hold trades for longer periods, usually up to a few days. These kinds of traders have the luxury of not constantly monitoring trades, with the flip side of requiring a bit more patience with the market.
Capital: Swing traders will need more capital than day traders to weather the storms of volatility that will inevitably come their way. Capital for swing traders should be enough that they don’t hit the margin call level.
Target profits: Due to the longer time frame of open trades, swing traders can potentially earn a larger profit, with up to hundreds of pips per trade between opening and closing of positions. Swing traders can capitalize on medium-term trends in the marketplace.
4. Position Traders
Position Traders are the guys with the largest capital. They can hold trades for up to years depending on their trading strategy. Position traders are uncommon with the “regular” crowd, due to the high capital requirements.
Capital: These traders will experience the extreme ups and downs of the market, and they will need to have enough capital to weather the strongest storms. This means a larger capital than what most people will usually invest in the market.
Target profits: All that patience means that position traders often enjoy the highest potential payoff. Due to the luxury of being able to follow long term trends, these traders can often earn up to thousands of pips per trade.
About the Author:
Bwayan Jordison is a gamer, toy collector, and a forex trader. He often writes articles to help and educate everyone about the foreign exchange market. Read his previous article here: What to Expect as a Forex Trader